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III. WORK RELATIONSHIP - Coggle Diagram

- - - - B. EVIDENCE REQUIRED AND BURDEN OF PROOF
        
        C. PIERCING THE VEIL OF
        CORPORATE ENTITY
        
        OFFICERS OF CORPORATION NOT LIABLE FOR LABOR OBLIGATION
        A corporation is a juridical entity with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Thus, as a general rule, an officer may not be held liable for the corporation’s labor obligations unless he acted with evident malice and/or bad faith in dismissing an employee. (CBTL v Arenas)
        
        EXCEPT IF OFFICER DISMISSED EE IN:
        
        ALLEGED
        a. MALICE
        b. BAD FAITH
        c. GROSS NEGLIGENCE
        
        PROOF (CLEAR & CONVINCING)
        (CBTL v. Arenas)
        
        EFFECT: OFFICERS ARE LIABLE
        EFFECT: When [the] corporate veil is pierced, the corporation and persons who are normally treated as distinct from the corporation are treated as one person, such that when the corporation is adjudged liable, these persons, too, become liable as if they were the corporation.
        
        PIERCING REQS:
        CORPORATE FICTION IS USED TO
        The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely:
        
        EVADE EXISTING OBLIGATION
        Defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation;
        
        FRAUD JUSTIFICATION, DEFEND CRIME
        Fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
        
        ALTER EGO
        a. MERE CONDUIT OF A PERSON OR CORPORATION
        Alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Sarona case)
        
        BURDEN TO PROVE E-E RELATIONSHIP IS ON EMPLOYEE
        The burden of proof is on the employee to prove using the four-fold test. Once it is proven, the burden shifts to the employer to show better proof of nonemployment.
        (Television and Production Exponents, Inc. v. Servana)
        
        BARE ALLEGATIONS ARE NOT ENOUGH
        Bare allegations are not enough. They must be
        supported by substantial evidence at the very least.
        (McLEOD v. NLRC)
        
        QUANTUM OF PROOF = SUBSTANTIAL EVIDENCE
        In labor cases, the quantum of proof necessary is substantial evidence, or such amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. The burden of proof rests upon the party who asserts the affirmative of an issue.
        (Tenazas v. R. Villegas Transport)
        
        NO PARTICULAR FORM OF EVIDENCE
        There is no particular form of evidence if required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted
        (Tenazas v. R. Villegas Transport)
        
        BURDEN TO PROVE DISMISSAL WAS FOR VALID CAUSE IS ON EMPLOYER, BUT PROVING E-E RELATIONSHIP COMES FIRST
        In an illegal dismissal case, the onus probandi rests on the employer to prove that its dismissal was for a valid cause. However, before a case for illegal dismissal can prosper, an employer-employee relationship must first be established. The burden of proof therefor rests on the employee where he has to prove the EER by substantial evidence.
        (Bitoy Javier v. Fly Ace Corporation)
        
        EVIDENCE OF E-E RELATIONSHIP
        
        BUNDY CARDS (PUNCH CARDS) ARE EVIDENCE FOR CONTROL
        
        LETTER/MEMO EXPLAINING ONE'S SERVICES WILL NO LONGER BE NEEDED
        It is evidence of dismissal.
        (If the employer admits any of these, like paying wages, that is evidence. (Television and Production Exponents, Inc. v. Servana)
        
        SIR: MOST USEFUL/IMPORTANT EVIDENCE IN PROVING E-E RELATIONSHIP IS TESTIMONIAL EVIDENCE
        
        PROOF OF EMPLOYMENT
        
        PAYROLLS
        
        ID CARDS
        
        SSS RETIREMENT BENEFITS
        
        TESTIMONIAL EVIDENCE
        
        TIME-OUT CARDS
        
        BUNDY CARDS
        
        LETTER/MEMO EXPLAINING ONE'S SERVICES WILL NO LONGER BE NEEDED
      - TEST FOR E-E
        RELATIONSHIP (SWDC)
        The test for determining an employer-employee relationship hinges on resolving
        
        Who has the power to select employees
        
        Who pays for their wages
        
        Who has the power to dismiss them; and
        
        Who exercises control in the
        methods AND the results
        by which the work is accomplished.
        (Miguel v. JCT Group Inc., G.R. No. 157752, [March 16, 2005], 493 PHIL 660-675)
        
        CONTROL TEST = MOST IMPORTANT
        The last factor, the "control test," is the most important.
        
        ENTERPRISES AFFECTED WITH
        PUBLIC INTEREST MUST IMPOSE REGULATIONS TO COMPLY WITH THE STATE
        The distinction acquires particular relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is on that account subject to regulation by the State with respect, not only to the relations between insurer and insured but also to the internal affairs of the insurance company.
        
        INSURANCE COMPANIES
        Rules and regulations governing the conduct of the business are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission agents in selling its policies that they may not run afoul of the law and what it requires or prohibits.
        
        QUALIFICATIONS OF INSURED
        Of such a character are the rules which prescribe the qualifications of persons who may be insured, subject insurance applications to processing and approval by the Company, and also reserve to the Company the determination of the premiums to be paid and the schedules of payment. None of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to establish an employer-employee relationship between him and the company.||| (Insular Life Assurance Co., Ltd. v. NLRC)
        
        FRANCHISORS MAY IMPOSE GUIDELINES FOR ITS SYSTEM, BUT THIS IS NOT CONTROL
        Franchising involves the use of an established business expertise, trademark, knowledge, and training. As such, the franchisee is required to follow a certain established system. Accordingly, the franchisors may impose guidelines that somehow restrict the petitioners' conduct which do not necessarily indicate "control." The important factor to consider is still the element of control over how the work itself is done, not just its end result.||| (Tesoro v. Metro Manila Retreaders, Inc., G.R. No. 171482, [March 12, 2014], 729 PHIL 177-239)
        
        GUIDELINES FOR RESULT ONLY =
        No E-E Relationship
        Rules merely serving as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, create no employer-employee relationship
        
        MAFINCO TRADING CORPORATION v. OPLE
        There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent contractors, instead of employees of the parties for whom they worked. In Mafinco Trading Corporation vs. Ople, 13 the Court ruled that a person engaged to sell soft drinks for another, using a truck supplied by the latter, but with the right to employ his own workers, sell according to his own methods subject only to prearranged routes, observing no working hours fixed by the other party and obliged to secure his own licenses and defray his own selling expenses, all in consideration of a peddler's discount given by the other party for at least 250 cases of soft drinks sold daily, was not an employee but an independent contractor.||| (Insular Life Assurance Co., Ltd. v. National Labor Relations Commission, G.R. No. 84484, [November 15, 1989], 259 PHIL 65-73)
        INVESTMENT PLANNING CORPORATION OF PH v. SOCIAL SECURITY SYSTEM
        In Investment Planning Corporation of the Philippines vs. Social Security System, a case almost on all fours with the present one, this Court held that there was no employer-employee relationship between a commission agent and an investment company, but that the former was an independent contractor where said agent and others similarly placed were:
        (a) paid compensation in the form of commissions based on percentages of their sales, any balance of commissions earned being payable to their legal representatives in the event of death or registration;
        (b) required to put up performance bonds;
        (c) subject to a set of rules and regulations governing the performance of their duties under the agreement with the company and termination of their services for certain causes;
        (d) not required to report for work at any time, nor to devote their time exclusively to working for the company nor to submit a record of their activities, and who, finally, shouldered their own selling and transportation expenses.
        (Insular Life Assurance Co., Ltd. v. NLRC)
        SARA v. NLRC
        More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell rice and palay without compensation except a certain percentage of what he was able to buy or sell, did work at his own pleasure without any supervision or control on the part of his principal and relied on his own resources in the performance of his work, was a plain commission agent, an independent contractor and not an employee.
        (Insular Life Assurance Co., Ltd. v. NLRC)
        PERFORMANCE FOR A FEE DOES NOT AUTOMATICALLY CREATE AN E-E RELATIONSHIP
        Not every performance of services for a fee creates an employer-employee relationship. To hold that every person who renders services to another for a fee is an employee — to give meaning to the security of tenure clause — will lead to absurd results.||| (Sonza v. ABS-CBN Broadcasting Corp., G.R. No. 138051, [June 10, 2004])
        UNIFORMITY IN PRICES IN FRANCHISES DOES NOT ESTABLISH CONTROL
        But uniformity in prices, quality of services, and good business practices are the essence of all franchises. A franchisee will damage the franchisor's business if he sells at different prices, renders different or inferior services, or engages in bad business practices. These business constraints are needed to maintain collective responsibility for faultless and reliable service to the same class of customers for the same prices.
        This is not the "control" contemplated in employer-employee relationships.
        
        FIX METHOD AND RESULT =
        E-E Relationship
        Rules that control or fix the methodology and bind or restrict the party hired to the use of such means address both the result and the means used to achieve it create an E-E relationship.
        
        Most common type of document for establishing control.
        Memos. These really show that the employer dictates the methods.
        
        NOT EVERY FORM OF CONTROL SUFFICES
        It should, however, be obvious that not every form of control that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may be accorded the effect of establishing an employer-employee relationship between them in the legal or technical sense of the term.
        (Insular Life Assurance Co., Ltd. v. NLRC)
        
        EXISTING ECONOMIC CONDITIONS BETWEEN PARTIES CAN HELP IN DETERMINING EXISTENCE OF E-E RELATIONSHIP
        There are instances when, aside from the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.
        (Francisco v. NLRC)
        
        TWO-TESTS
        
        CONTROL OVER MEANS AND METHODS
        
        UNDERLYING ECONOMIC REALITIES OF ACTIVITY OR RELATIONSHIP
        The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer's power to control the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic realities of the activity or relationship.
        
        Control in such relationships addresses the details of day to day work like assigning the particular task that has to be done, monitoring the way tasks are done and their results, and determining the time during which the employee must report for work or accomplish his assigned task.
        (Tesoro v. Metro Manila Retreaders, Inc)
        
        ESPECIALLY APPROPRIATE WHEN THERE IS NO WRITTEN AGREEMENT OR TERMS OF REFERENCE TO BASE E-E RELATIONSHIP ON
        This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the relationship based on the various positions and responsibilities given to the worker over the period of the latter's employment.||| (Francisco v. National Labor Relations Commission, G.R. No. 170087, [August 31, 2006], 532 PHIL 399-413)A
        
        CIRCUMSTANCES OF
        WHOLE ECONOMIC ACTIVITY
        Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as:
        
        INTEGRAL
        the extent to which the services performed are an integral part of the employer's business;
        
        INVESTMENT IN EQUIPMENT/FACILITIES
        the extent of the worker's investment in equipment and facilities;
        
        CONTROL
        the nature and degree of control exercised by the employer;
        
        OPPORTUNITY FOR PROFIT/LOSS
        the worker's opportunity for profit and loss;
        
        SKILL REQUIRED FOR SUCCESS
        the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise;
        
        PERMANENCY & DURATION OF REL. BETWEEN WORKER & EMPLOYER
        the permanency and duration of the relationship between the worker and the employer; and
        
        DEPENDENCE
        the degree of dependency of the worker upon the employer for his continued employment in that line of business.||| (Francisco v. NLRC)
        
        ECONOMIC DEPENDENCE = WORKER'S DEPENDENCE FOR CONTINUED EMPLOYMENT
        The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing possible employment relationships for purposes of the Federal Labor Standards Act is dependency. 25 By analogy, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer.||| (Francisco v. National Labor Relations Commission, G.R. No. 170087, [August 31, 2006], 532 PHIL 399-413)
        
        PROOF
        
        PAYROLLS
        
        ID CARDS CAN IDENTIFY ONE AS EMPLOYEE
        In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues it. Together with the cash vouchers covering petitioner's salaries for the months stated therein, these matters constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent.||| (Francisco v. National Labor Relations Commission, G.R. No. 170087, [August 31, 2006], 532 PHIL 399-413)
        
        SSS REGISTRATION =
        PROOF OF EMPLOYMENT
        We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter were the former's employees. The coverage of Social Security Law is predicated on the existence of an employer-employee relationship.||| (Francisco v. National Labor Relations Commission, G.R. No. 170087, [August 31, 2006], 532 PHIL 399-413)
        
        TIME-OUT CARDS
        
        TESTIMONY OF CO-WORKER
        
        SIR: ECONOMIC REALITIES TEST IS ONLY USED WHEN THE FOUR-FOLD TEST DOES NOT SUFFICE
        
        Four-fold test
        
        Failing that, the economic realities test applies
        
        It is not a choose what you want to apply kind of test. The four-fold test must prove insufficient first.
        
        INCLUSION IN PAYROLLS
        
        Sir: Advise employees to keep their payslips
        
        WAGES ARE RECEIVED BY EE AS COMPENSATION FOR SERVICES RENDERED
        It is settled that the mode of computing compensation is not the decisive factor in ascertaining the existence of an employer-employee relationship. What matters is that the employee received compensation from the employer for the services that he or she rendered.||| (Paragele v. GMA Network, Inc., G.R. No. 235315, [July 13, 2020])
        
        CAPITAL USED TO ATTRACT PROSPECTIVE FRANCHISEES = NOT WAGES
        Petitioners cannot use the revolving funds feature of the Service Franchise Agreements as evidence of their employer-employee relationship with Bandag. These funds do not represent wages. They are more in the nature of capital advances for operations that Bandag conceptualized to attract prospective franchisees. Petitioners' incomes depended on the profits they make, controlled by their individual abilities to increase sales and reduce operating costs.||| (Tesoro v. Metro Manila Retreaders, Inc., G.R. No. 171482, [March 12, 2014], 729 PHIL 177-239)
        
        MODE OF COMPUTING COMPENSATION NOT DECISIVE
        
        Class: All the elements of the test must be satisfied
        
        EXPRESS PROVISION THAT THERE IS NO E-E RELATIONSHIP IS NOT CONTROLLING
        The express provision in the Agreement that Synergy was an independent contractor and there would be "no employer-employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other hand" is not legally binding and conclusive as contractual provisions are not valid determinants of the existence of such relationship. For it is the totality of the facts and surrounding circumstances of the case 33 which is determinative of the parties' relationship.||| (Philippine Airlines Inc. v. Ligan, G.R. No. 146408, [February 29, 2008], 570 PHIL 497-515)
    - - LC 106-109
        DO 18-A (2011)
        DO 174-17
        DEPARTMENT CIRCULAR NO. 01-17
        
        ARTICLE 106. Contractor or Subcontractor. 83 —
        ALL SHALL BE PAID UNDER LC:
        
        EMPLOYEES OF CONTRACTOR
        
        SUBCONTRACTOR
        Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.
        
        SOLIDARY LIABILITY WHEN CC/SC FAILS TO PAY WAGES OF EMPLOYEES
        
        EMPLOYER
        
        CC/SC
        a. EXTENT OF WORK PERFORMED UNDER CONTRACT
        b. SAME EXTENT HE IS LIABLE TO EMPLOYEES DIRECTLY EMPLOYED
        In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.
        
        SOLE MAY
        
        RESTRICT/PROHIBIT CONTRACTING-OUT OF LABOR
        a. TO PROTECT RIGHTS OF WORKERS UNDER LC
        The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor to protect the rights of workers established under this Code.
        
        REMOVE DISTINCTIONS BETWEEN LABOR-ONLY CONTRACTING & LEGITIMATE CONTRACTING
        a. SUB-TYPES OF CONTRACTING INCLUDED
        b. TO DETERMINE WHO SHALL BE EMPLOYER
        c. TO PREVENT VIOLATION OF LC
        In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.
        
        LABOR-ONLY CONTRACTING REQS
        
        NO SUBSTANTIAL
        a. CAPITAL
        b. INVESTMENT (TEMPA)
        
        WORK DIRECTLY RELATED TO PRINCIPAL BUSINESS
        There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer.
        
        EFFECT OF LABOR-ONLY CONTRACTING:
        
        INTERMEDIARY MERELY AN AGENT
        
        WORKERS = EEs
        In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
        
        INDIRECT EMPLOYER:
        
        NOT EMPLOYER
        
        CONTRACTS IC
        a. PERSON
        b. PARTNERSHIP
        c. ASSOCIATION
        d. CORPORATION
        ARTICLE 107. Indirect Employer. — The provisions of the immediately preceding article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.
        
        BOND MAY BE REQUIRED BY EMPLOYER/INDIRECT EMPLOYER
        
        ANSWERS FOR WAGES OF EE
        
        UNPAID BY CC/SC
        ARTICLE 108. Posting of Bond. — An employer or indirect employer may require the contractor or subcontractor to furnish a bond equal to the cost of labor under contract, on condition that the bond will answer for the wages due the employees should the contractor or subcontractor, as the case may be, fail to pay the same.
        
        EEs/IEs HELD LIABLE WITH CC/SC FOR ANY VIOLATION OF LC
        ARTICLE 109. Solidary Liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code.
        
        BOTH CONSIDERED DIRECT EMPLOYERS TO DETERMINE EXTENT OF CIVIL LIABILITY
        For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.
      - A. LEGITIMATE INDEPENDENT CONTRACTING
        
        a. MANAGEMENT FUNCTION
        
        b. TRILATERAL RELATIONSHIP
        
        c. PRESUMPTION
        
        d. REQUISITE FOR LEGITIMATE CONTRACTING
        
        e. PROOF
        
        2 more items...
        
        REQS FOR LEGITIMATE CONTRACTING
        
        DISTINCT & INDEPENDENT BUSINESS
        
        SUBSTANTIAL CAPITAL OR INVESTMENT IN TEMP
        We also agree that Eutiquio was not an independent contractor for he does not carry a distinct and independent business, and he does not possess substantial capital or investment in tools, equipment, machinery or work premises.||| (Big AA Manufacturer v. Antonio, G.R. No. 160854, [March 3, 2006], 519 PHIL 30-44)
        
        (a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof; and
        (b)The contractor has substantial capital or investment in the form of tools, equipment, machineries (sic), work premises, and other materials which are necessary in the conduct of his business. (Rolando Escario et al. v. California Manufacturing Company, Inc., et al.)
        
        2 more items...
        
        LABOR-ONLY CONTRACTING IS PRESUMED
        CC MUST PROVE OTHERWISE
        Generally, the presumption is that the contractor is a labor-only contracting unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like.
        In the present case, though Garden of Memories is not the contractor, it has the burden of proving that Requiño has sufficient capital or investment since it is claiming the supposed status of Requiño as independent contractor. 18 Garden of Memories, however, failed to adduce evidence purporting to show that Requiño had sufficient capitalization. Neither did it show that she invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the completion of the service contract.||| (Garden of Memories Park and Life Plan, Inc., v. National Labor Relations Commission, G.R. No. 160278, [February 8, 2012], 681 PHIL 299-314)
        
        UNREGISTERED WITH DOLE, AUTOMATICALLY ILLEGAL CONTRACTOR
        
        1 more item...
        
        SUBSTANTIAL CAPITAL
        (l) Refers to paid-up capital stock/shares at least Five Million Pesos (P5,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single proprietorship, a net worth of at least Five Million Pesos (P5,000,000.00).
        
        SIR: In order to get the DO 174-14 registration, they must submit P5,000,000
        The purpose of this is to give rise to a presumption in favor of the presence of substantial capital.
        If they do not meet this DOLE registration requirement, they are illegal contractors in relation to all other principals. (My guess: This is opposed to a case-to-case lack of substantial capital)
        
        Please read Section 6 of DO 174-17 carefully. I will leave this to you.
        
        DEFINITION OF TERMS:
        DO 174-17 Sec. 3, following terms shall mean:
        
        BOND -
        (a) Refers to the bond under Art. 108 of the Labor Code that the principal may require from the contractor to be posted equal to the cost of labor under contract.
        
        CONTRACTING or SUBCONTRACTING - (c)Refers to an arrangement whereby a principal agrees to farm out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such job or work is to be performed or completed within or outside the premises of the principal.
        
        CONTRACTOR -
        (d) Refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement providing a specific job or undertaking farmed out by principal under a Service Agreement.
        
        CONTRACTOR'S EMPLOYEE
        (e) Refers to employee of the contractor hired to perform or complete a job or work farmed out by the principal pursuant to a Service Agreement with the latter
        
        LABOR-ONLY CONTRACTING
        (h) Refers to arrangement where contractor or subcontractor merely recruits, supplies, or places workers to perform a job or work for a principal, and the elements enumerated in Sec. 5 hereunder are present.
        
        PRINCIPAL
        (i) Refers to any natural or juridical entity, whether employer or not, who puts out or farms out a job or work to a contractor.
        
        SERVICE AGREEMENT
        (j) Refers to the contract between the principal and contractor containing the terms and conditions governing the performance or the completion of a specific job or work being farmed out for a definite or predetermined period.
        
        SOLIDARY LIABILITY
        (k) Refers to the liability of the liability of the principal, pursuant to the provision of Article 109 of the Labor Code, as direct employer together with the contractor for any violation of any provision of the Labor Code.
        
        It also refers to the liability of the principal, in the same manner and extent that he/she is liable to his/her direct employees, to the extent of the work performed under the contract when the contractor fails to pay the wages of his/her employees, as provided in Art. 106 of the Labor Code, as amended.
        
        DEFINITION UNDER DO-18-02
        
        SUBSTANTIAL CAPITAL OR INVESTMENT
        a. CAPITAL STOCKS, SUBSCRIBED CAPITALIZATION, OR TEIMP
        b. ACTUALLY & DIRECTLY USED BY CONTRACTOR/SUBCONTRACTOR
        c. PERFORMANCE/COMPLETION OF JOB/WORK/SERVICE CONTRACTED
        "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out.
        
        2 more items...
        
        3 PARTIES
        Hence, there are three parties involved in these arrangements,
        
        PRINCIPAL
        a. FARMS OUT JOB/SERVICE TO CC/SC
        
        CONTRACTOR/SUB-CONTRACTOR
        a. INDEPENDENT BUSINESS
        
        CONTRACTUAL WORKERS
        a. ENGAGED BY CC/SC TO DO SERVICE
        the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work or service. (Emphasis and underscoring supplied)
        
        TRILATERAL RELATIONSHIP
        
        SPECIFIC JOB BETWEEN:
        a. PRINCIPAL &
        b. CONTRACTOR/SUBCONTRACTOR
        
        CONTRACT OF EMPLOYMENT BETWEEN:
        a. CC/SC
        b. WORKERS
        Section 3. Trilateral relationship in contracting arrangements. — In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers.
        
        INAPPLICABLE TO
        Applicability of DO 174-17 (Department Circular No. 01-17):
        ● Not applicable to the following
        
        IT SERVICES
        a. B/LPO
        b. SALE
        c. CARRIAGE
        d. MANAGEMENT
        ○ Information technology services such as BPO/Legal Process Outsourcing (LPO),
        Knowledge Process Outsourcing
        ○ Contract of sale
        ○ Contract of carriage
        ○ Contract of management
        
        CONSTRUCTION INDUSTRY
        a. EXCEPT IF ENGAGED IN SERVICES OTHER THAN CONSTRUCTION
        ● Construction Industry under PCAB - covered by DO 19, Series of 1993, DO 13, Series of 1998,
        and DOLE-DPWH-DILG-DTI and PCAB Memorandum of Agreement-Joint Administrative Order
        No. 1, Series of 2011
        ○ GEN - contractors not required to register under DO 174-17
        ○ EXC- Contractors engaged in services other than construction
        
        FACTORS OF INDEPENDENT CONTRACTOR
        In order to be considered an independent contractor it is not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises.
        In addition, the following factors need be considered:
        
        INDEPENDENT BUSINESS
        (a) whether the contractor is carrying on an independent business;
        
        NATURE & EXTENT OF WORK
        (b) the nature and extent of the work;
        
        SKILL REQUIRED
        (c) the skill required;
        
        TERM AND DURATION OF RELATIONSHIP
        (d) the term and duration of the relationship;
        
        RIGHT TO ASSIGN SPECIFIED PIECES OF WORK
        (e) the right to assign the performance of specified pieces of work;
        
        CONTROL & SUPERVISION OF WORKERS
        (f) the control and supervision of the workers;
        
        DUTY TO SUPPLY
        (i) the duty to supply premises, tools, appliances, materials, and labor, and
        
        POWER TO HIRE, FIRE, AND PAY WORKERS OF CONTRACTOR
        (g) the power of the employer with respect to the hiring, firing and payment of workers of the contractor,
        
        PAYMENT MODE
        (j) the mode, manner and terms of payment.
        
        PREMISES CONTROL
        (h) the control of the premises;
        
        DEFINITION OF LEGITIMATE INDEPENDENT CONTRACTING
        There is permissible job contracting, when a principal agrees to put out or farm out with a contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job or work or service is to be performed or completed within or outside the premises of the principal.
        
        SIR: THERE IS AN ILLEGITIMATE KIND OF INDEPENDENT CONTRACTING
        If what he's supposed to provide only is manpower, instead of specific talents, that is not an independent contracting.
        
        LABOR CONTRACTING
        Section 5 of DO 174-17 introduces 2 types of labor-only contracting: a OR b.
        Look at the prepositions.
        For a) i. lack of substantial capital is enough
        while ii. and iii. must concur.
        
        Sir: In determining substantial capital, it is decided on a case to case basis.
      - B. LABOR ONLY CONTRACTING
        
        C. OTHER PROHIBITED ACTIVITIES
        
        ILLEGAL CONTRACTING (CIILI-RSRS-O)
        ● Even if you are compliant with Sec. 5, the presence of ANY OF THESE = illegal contracting
        
        CABO = LABOR ONLY PROVIDER
        ● First: “Cabo” -> defined in Sec. 3(b)
        ○ Labor-only provider; contractor ONLY provides labor and not a service per se
        ○ This is why tools and machinery
        ○ Ex. Piandre and salons -> not just raw labor but also training and even the equipment
        ○ Services must be very clear and explicit
        
        IN-HOUSE AGENCY
        ● Second: Contracting out of job/work due in-house agency
        
        IN-HOUSE COOPERATIVE SUPPLYING WORK
        ● Third: Contracting out of job/work due in-house cooperative merely supplying work to the
        principal
        
        LOCK OUT OF EMPLOYEES
        ● Fourth: work/lock-out
        ○ Company cant bring in workers when there is a valid strike
        ○ Lock-out: opposite of strike (employer locks out employees)
        
        INTERFERENCE WITH RIGHT TO SELF-ORGANIZATION
        ● Fifth: Union members
        ○ Cant hire labor if it interferes with their right to self unionization
        
        REGULAR EMPLOYEES CURRENTLY PERFORM SUCH WORK
        ● Sixth (f): Currently being performed by regular employees
        ○ Most contentious
        ○ Prohibits contracting out of functions already being performed
        ○ Sir personally does not agree on the validity; contradicts right of employer to contract out
        ■ It is management prerogative to contract out functions pursuant to a legit business interest
        ■ Should be void for going beyond what labor code authorizes
        
        SIGNING:
        a. BLANK PAYROLLS
        b. RESIGNATION LETTER
        ● Seventh (g): Signing of blank payrolls, signing resignation letter etc
        ○ Contractor protects himself by getting them to sign things they dont understand
        
        REPEATED HIRING BY CC OF CE FOR SHORT DURATION
        ● Eighth (h): repeated hiring by the contractor/subcontractor of employees under an employment contract of short duration
        
        SHORTER PERIOD OF EMPLOYMENT THAN TERM OF SERVICE AGREEMENT
        a. EXCEPT IF DIVISIBLE INTO PHASES
        ● Ninth (i): Signing contract fixing period of employment shorter than term of service agreement unless divisible into phases
        ○ Service agreement: contract between contractor & principal
        ○ Normally 1-3 years
        ○ Ex. If Employer hires contractor for 1 year, your contractor to welder should also be 1 year
        
        OTHER PRACTICES CIRCUMVENTING SECURITY OF TENURE
        ● Tenth (j): Other practices designed to circumvent the right of workers to security of tenure
        
        D. CASE STUDIES
        
        E-E RELATIONSHIP BETWEEN CC & CE MUST EXIST FIRST
        Petitioners are NOT employees of respondents, since their relationship fails to pass muster the four-fold test of employment
        ● Respondents had no part in petitioners selection and management;
        ● Petitioners compensation was paid out of the arriba (which is a percentage deducted from the total bets), not by petitioners;
        ● Petitioners performed their functions as masiador and sentenciador free from the direction and control of respondents.
        ○ In the conduct of their work, petitioners relied mainly on their expertise that is characteristic of the cockfight gambling, and were never given by respondents any tool needed for the performance of their work.
        Respondents, not being petitioners employers, could never have dismissed, legally or illegally, petitioners, since respondents were without power or prerogative to do so in the first place.
        
        INDEPENDENT CONTRACTOR PROOF
        Investment Planning Corporation of the Philippines v. Social Security System: The Court held that there was no employer-employee relationship between an agent and an investment company, but rather the former was an independent contractor as shown by the ff:
        
        COMMISSION
        ○ Paid compensation in the form of commissions
        
        BONDS
        ○ Required to put up performance bonds
        
        RULES & REGULATIONS
        ○ Subject to a set of rules and regulations
        
        NOT REQUIRED TO REPORT TO WORK
        ○ Not required to report for work at any tim
        
        EMPLOYEES vs PARTNERS
        ● These shoe shiners are not employees of the company, but are partners instead.
        ○ The owner/manager does not exercise control and supervision over the shoe shiners.
        ○ The shiners have their own customers from whom they charge the fee and divide the proceeds equally with the owner, which make the owner categorized them as on purely commission basis.
        
        a. FACTORS
        
        b. LIABILITY
        
        LEGITIMATE JOB CONTRACTING:
        PRINCIPAL NOT LIABLE TO CE
        In legitimate job contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor only for the payment of the employee’s wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees.
        
        LABOR-ONLY CONTRACTING:
        PRINIPAL DIRECTLY LIABLE TO CE
        (AND SOLIDARILY LIABLE WITH CC)
        On the other hand, in labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws.
        The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liabe with the labor-only contractor for all the rightful claims of the employees.
        
        UNPAID WAGES:
        EXCEPT FOR UNPAID WAGES
        
        LABOR-ONLY CONTRACTING REQS:
        
        NO SUBSTANTIAL CAPITAL OR INVESTMENT - RELATING TO JOB, WORK, SERVICE CONTRACTED OUT
        
        DIRECTLY RELATED TO MAIN BUSINESS OF PRINCIPAL
        For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present is, for convenience, re-quoted:
        
        (i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal,
        OR
        
        CONTRACTOR HAS NO RIGHT TO CONTROL OVER CEs' WORK
        (ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis and CAPITALIZATION supplied)
        
        ||| (Philippine Airlines Inc. v. Ligan, G.R. No. 146408, [February 29, 2008], 570 PHIL 497-515)
        (Mandaue v. Andales)
        (Aliviado et al v. Procter & Gamble, and Promm Gemm)
        
        PERMISSIBLE JOB CONTRACTING, UNLIKE LABOR-ONLY CONTRACTING INVOLVES:
        
        WORK WITHIN A PERIOD
        
        PERFORMED IN/OUT PREMISES OF PRINCIPAL
        On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.
        
        PROVEN SUBSTANTIAL CAPITAL = NO NEED TO PROVE SUBSTANTIAL INVESTMENT
        Previously, in the case of Neri vs. NLRC, 18 we held that in order to be considered as a job contractor it is enough that a contractor has substantial capital. In other words, once substantial capital is established it is no longer necessary for the contractor to show evidence that it has investment in the form of tools, equipment, machineries, work premises, among others.||| (Vinoya v. National Labor Relations Commission, G.R. No. 126586, [February 2, 2000], 381 PHIL 460-484)
    - - ABSENT CONTROL, NO E-E RELATIONSHIP
        Petitioners assumed only limited administrative control of the bank as part of the "Committee of Depositors." However, there is no showing that they took over the management and control of the bank.||| (Uy v. Villanueva, G.R. No. 157851, [June 29, 2007], 553 PHIL 69-86)
  - - - EMPLOYER MAY BE NATURAL OR JURIDICAL, EMPLOYING EMPLOYEE'S SERVICES
        ART. 173. [167] Definition of Terms. 129 -As used in this Title, unless the context indicates otherwise:
        (f) "Employer" means any person, natural or juridical, employing the services of the employee.
        
        ART. 219. [212] Definitions
        EMPLOYER
        
        ANY PERSON ACTING IN THE INTEREST OF AN EMPLOYER
        a. DIRECTLY or INDIRECTLY
        (e) "Employer" includes any person acting in the interest of an employer, directly or indirectly.
        
        EXCLUDING LABOR ORGANIZATION & ITS OFFICERS or AGENTS
        The term shall not include any labor organization or any of its officers or agents
        
        EXCEPT WHEN ACTING AS EMPLOYER
        except when acting as employer.
        
        EMPLOYEE USUALLY
        
        OCCUPIES NO OFFICE
        
        GENERALLY EMPLOYED BY MANAGING OFFICER
        a. WHO HIRES & DETERMINES COMPENSATION
        
        An "employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.||| (Uy v. Villanueva, G.R. No. 157851, [June 29, 2007], 553 PHIL 69-86)
        
        MANAGER = ANYONE RESPONSIBLE FOR SUBORDINATES & ORG RESOURCES
        The term "manager" generally refers to "anyone who is responsible for subordinates and other organizational resources.||| (United Pepsi-Cola Supervisory Union v. Laguesma, G.R. No. 122226, [March 25, 1998], 351 PHIL 244-310)
        
        2 more items...
        
        CORPORATE OFFICERS NOT PERSONALLY LIABLE FOR MONEY CLAIMS
        Corporate officers are not personally liable for the money claims of discharged corporate employees, unless they acted with evident malice and bad faith in terminating their employment.||| (Uy v. Villanueva, G.R. No. 157851, [June 29, 2007], 553 PHIL 69-86)
        
        "EMPLOYEE" INCLUDES ANY PERSON IN THE EMPLOYE OF AN EMPLOYER
        (f) "Employee" includes any person in the employ of an employer.
        
        STILL EMPLOYEE IF
        
        WORK CEASED AS A RESULT OF OR IN CONNECTION WITH:
        a. ANY CURRENT LABOR DISPUTE
        b. ANY UNFAIR LABOR PRACTICE
        
        NOT YET OBTAINED ANY OTHER SUBSTANTIALLY EQUIVALENT AND REGULAR EMPLOYMENT
        It shall include any individual whose work has ceased as a result of or in connection with any current labor dispute or because of any unfair labor practice if he has not obtained any other substantially equivalent and regular employment.
        
        NOT LIMITED TO EMPLOYEES OF A PARTICULAR EMPLOYER
        The term shall not be limited to the employees of a particular employer, unless the Code so explicitly states.
        
        UNLESS CODE SO EXPLICITLY STATES
        
        "EMPLOYEE" ANY PERSON COMPULSORILY COVERED BY GSIS CA 186 INCLUDING:
        
        ARMED FORCES OF PH
        
        ANY PERSON EMPLOYED AS CASUAL, EMERGENCY, TEMPORARY, SUBSTITUTE, OR CONTRACTUAL, OR ANY PERSON COMPULSORILY COVERED BY SSS UNDER RA 1161
        (g) "Employee" means any person compulsorily covered by the GSIS under Commonwealth Act Numbered One Hundred Eighty-Six, as amended, including the members of the Armed Forces of the Philippines, and any person employed as casual, emergency, temporary, substitute or contractual, or any person compulsorily covered by the SSS under Republic Act Numbered Eleven Hundred Sixty-One, as amended.
        
        "PERSON" = ANY INDIVIDUAL, PARTNERSHIP, FIRM, ASSOCIATION, TRUST, CORPORATION, OR LEGAL REPRESENTATIVE THEREOF
        (h) "Person" means any individual, partnership, firm, association, trust, corporation or legal representative thereof.
      - EMPLOYEE = ANY INDIVIDUAL EMPLOYED BY EMPLOYER
        (c) "Employee" includes any individual employed by an employer.